Rating Agencies See Longer Term Harm From Italian Tax Amnesty

by Ulrika Lomas, Tax-News.com, Brussels

08 October 2009

The European sovereign rating analysts of both Standard and Poor’s and Fitch have expressed a certain amount of dissatisfaction with the current Italian tax amnesty.

Standard & Poor’s analyst, Moritz Kramer, is reported to have gone as far as to say that the tax amnesty could be damaging in the long term. This was because, in his opinion, when they are repeated they can impede the formation of a stable tax yield basis.

He said that they had seen in the past that, when each amnesty is called the last but then repeated, it might bring in substantial funds in the short-term. However, the credibility of the tax authority is called into question in the long term, risking that the problem may become structural. With an amnesty every three years, he continued, it becomes more profitable for the taxpayer to wait for the next amnesty, rather than declare now and pay taxes.

Brian Coulton, European sovereign rating analyst at Fitch, is reported to have made similar recent comments. He said that he was a little disappointed that the Italian government had resorted once again to a tax amnesty to bring capital back into the country.

He reiterated that it would bring funds into Italy in the short term and help the government to restrict a widening of the budget deficit in 2009 and 2010. However, it was going in the wrong direction and could be potentially damaging to public finances in the long term. He said that it undermines, at least potentially, the aim of fostering a tax-paying culture.

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